BlackRock, the world’s largest investment company, will make addressing climate change a top priority in a sweeping signal to the wider world of finance.
Chief executive and chairman Larry Fink wrote to clients and chief executive on Tuesday to say sustainability would be BlackRock’s “new standard for investing”.
“Climate risk is investment risk,” Fink wrote.“Indeed, climate change is almost invariably the top issue that clients around the world raise.”
BlackRock (BLK) will exit investments with “high sustainability-related risk” such as thermal coal, launch new fossil fuel-free investment products, and make sustainability a key question for investment managers when building portfolios.
Fink said BlackRock would also increasingly use its power as a shareholder to vote against companies ignoring climate change.
Fink’s message represents a powerful statement. BlackRock manages $6.9 trillion (£5.32tn) of money for investors around the world and owns significant stakes in many of the world’s biggest companies.
“Climate change has become a defining factor in companies’ long-term prospects,” Fink wrote. “Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect.
“But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
Fink predicted climate change would destroy the value of some traditional investments, re-shape products, and create new investment opportunities.
“What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas?” he wrote. “What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”
His words echo that of Bank of England governor Mark Carney, who warned last year that pension funds could be hit by fossil fuel investments becoming “worthless” as the world moves to tackle rising temperatures.
Fink predicted “a significant reallocation of capital” in the company years as investors pull money from companies that contribute to climate change, such as fossil fuels, and move it towards greener investments.
He warned climate change could create “a much more structural, long-term crisis” than financial markets have ever witnessed.
“We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider,” Fink wrote. “But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change.”
Fink called on companies to make greater disclosures around the risks to their business posed by climate change.
The letter represents the most high-profile warning from the private sector on the potentially devastating effects of climate change on finance. The Bank of England estimates as much as $20tn-worth of assets could be at risk from climate change.
As well as moving to protect investor value, financial firms are increasingly facing pressure to drive change by ending the funding of polluters. BlackRock was among the institutions targeted by Extinction Rebellion during protests in the City of London last year.